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Facts CASE STUDY 6 Hant has an equity investment, which was measured at cost under IAS 39. The fair value of the investment is $6 million and the carrying value is $4 million. Hant has decided that the date of initial accounting for IFRS 9 is December 1, 20X9, and its period end is December 31, 20X9. Required How would the investment be treated on transition to IFRS 9? Solution The difference between the carrying amount and the fair value is recognized in opening retained earnings ($2 million) of the period of initial recognition which would be January 1, 20X0. Any fair value changes between December 1 and December 31, 20X9, are recognized in profit or loss unless Hant designates the investment as FVOCI. MULTIPLE-CHOICE QUESTIONS 1. IFRS 9, Financial Instruments, deals with the measurement and classification of which of the following items? a. Financial assets. b. Impairment of assets. c. Financial liabilities. d. Hedge accounting. 2. Early adoption of IFRS 9 is permitted under the Standard. However there are obstacles to early adoption. Which of the following issues should not be an obstacle to early adoption? a. In some jurisdictions early adoption may not be permitted. b. In some jurisdictions IFRS 9 will not be adopted quickly. c. Early adoption is a major step for an entity, as IAS 39 has to be used where there is no new standard. d. Lack of training of staff. 3. IFRS 9 uses a mixed-model approach to measurement. Which of the following measurement methods are acceptable under IFRS 9? a. Amortized cost, fair value, and replacement cost. b. Amortized cost, fair value, and net realizable value. c. Amortized cost and fair value. d. Amortized cost, fair value, and depreciated replacement cost. 4. How does IFRS 9 distinguish between the measurement methods to be used in the standard? a. By reviewing the business model of each entity and the risks and rewards of the transaction. b. By reviewing the business model of each entity and the contractual cash flow characteristics of the instrument. c. By reviewing the realizability and the contractual cash flow characteristics of the instrument. d. By reviewing the realizability of the instrument and risks and rewards of ownership. 5. Under what circumstances can the profit or loss on an equity instrument carried at fair value be dealt with in Other Comprehensive Income? a. When the equity investment is not held for trading. b. When the profit or loss is capable of recycling. c. When the equity investment is available for sale. d. When the equity investment is held for trading. 6. Under what circumstances under IFRS 9 can an entity classify financial assets that meet the amortized cost criteria as at FVTPL? a. Where the instrument is held to maturity. b. Where the business model approach is adopted. c. Where the financial asset passes the contractual cash flow characteristics test. d. If doing so eliminates or reduces an accounting mismatch. 7. When can the classification of an instrument which has been determined on initial recognition, be changed? a. Reclassifications are only permitted on the change of the contractual cash flows. b. Reclassifications are only permitted on the change of an entity’s business model and are expected to occur only infrequently. c. Reclassifications are only permitted where a category becomes tainted. d. Reclassifications are not permitted.
8. In what way does IFRS 9 require embedded derivatives to be accounted for? a. Embedded derivatives that would have been separately accounted for at FVTPL under IAS 39 because they were not closely related to the financial asset host will have to be separated. b. Embedded derivatives that would have been separately accounted for at FVTPL under IAS 39 because they were not closely related to the financial asset host will no longer be separated. c. Embedded derivatives are accounted for at amortized cost. d. Embedded derivatives are accounted for at fair value with gains and losses going to OCI. 9. Which of the following events will not necessarily be a consequence of IFRS 9? a. Some instruments that may under IAS 39 have been measured entirely at amortized cost or as available for sale, will more likely be measured at FVTPL. b. Some financial assets that are currently disaggregated into host financial assets that are not at FVTPL will instead be measured at FVTPL in their entirety. c. Assets that are currently classified as held to maturity are likely to continue to be measured at amortized cost, as they are held to collect the contractual cash flows and often give rise to only payments of principal and interest. d. More assets will be tested for impairment and the loss will be in excess of the expected credit loss. 10. What was the primary aim of the revision of IAS 39? a. It was a response to the credit crisis. b. IAS 39 was out of date. c. To remove inconsistencies between US GAAP and to improve IFRS in accounting for financial instruments. d. To stop management of earnings. 11. An entity has the following four financial instruments and wishes to know whether they will be valued at fair value or valued at amortized cost. 1. Bond with stated maturity and payments of principal and interest linked to unleveraged inflation index of the currency in which the instrument is issued. 2. Bond convertible into equity of the issuer. 3. An inverse floating interest rate loan. 4. Bond with a variable interest rate and an interest cap. a. 1 and 2 at amortized cost, 3 and 4 at fair value. b. 1 and 4 at amortized cost, 2 and 3 at fair value. c. 2 and 3 at amortized cost, 1 and 4 at fair value. d. 3 and 4 at amortized cost, 1 and 2 at fair value.
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Title Page Copyright Page Foreword
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DIVIDENDS DISCLOSURE: KEY ELEMENTS
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CONSOLIDATED FINANCIAL STATEMENTS A
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ELABORATION AND INTERPRETATION OF T
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MULTIPLE-CHOICE QUESTIONS Chapter 3
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FOREWORD TO THE FIRST EDITION by th
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PREFACE Achieving consistency in fi
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ABOUT THE AUTHORS Abbas Ali Mirza i
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ecognition and use of IFRS. A major
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SIC 12, Consolidation—Special-Pur
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The IFRS Advisory Council shall com
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Chapter 2 IASB FRAMEWORK INTRODUCTI
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ELEMENTS OF FINANCIAL STATEMENTS Th
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Chapter 3 PRESENTATION OF FINANCIAL
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XYZ Inc. is a manufacturer of telev
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Statement of Comprehensive Income I
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Available-for-sale financial assets
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Notes The notes should disclose the
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equired by the counterparty to sett
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The costs of purchase constitute al
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Based on the FIFO cost flow assumpt
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• Accounting policies adopted for
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f. Choices a and c. g. Choices a, b
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1. They should be “short term”
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2. Proceeds from disposal of debt i
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1. Cash collections from customers
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3. Placements and withdrawals of de
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Additional Information Retained ear
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c. Indirect Method Cash paid to sup
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Notes to the Consolidated Cash Flow
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Chapter 6 ACCOUNTING POLICIES, CHAN
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een applied. The impact of the new
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• For current and each prior peri
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An entity should disclose amounts a
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Notes to the Financial Statements (
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d. The entity would find the determ
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Given these facts, what is the “a
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existed at the end of the reporting
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Chapter 8 CONSTRUCTION CONTRACTS (I
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2. Costs that are attributable to c
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4. Revenue, costs, and profits to b
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Facts 34 Construction contracts Mil
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ecognized as revenue. Therefore, $7
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The Standard Applies to the Account
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ACCOUNTING FOR DEFERRED TAX To acco
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TEMPORARY DIFFERENCES NOT RECOGNIZE
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Required Show the impact on the fin
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Solution Zero. There is no temporar
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Solution Facts CASE STUDY 13 East i
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Since 20X4, Frontier has incurred s
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calculated that the liability and e
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Chapter 10 PROPERTY, PLANT, AND EQU
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Required 2. Initial delivery and ha
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disposal. Any gain on disposal is t
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financing liability and the financi
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Chapter 11 LEASES (IAS 17) BACKGROU
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the fair value of the asset. During
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ate in the lease is 9.3% (approxima
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Discuss how this transaction should
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The basic lease accounting model ha
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6. The lease of land and buildings
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Chapter 12 REVENUE (IAS 18) BACKGRO
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• Do not involve the same counter
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• The costs incurred and the cost
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Up to March 31, 20X9, the value of
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e that the real estate developer as
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Turnover is recognized when the ris
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Chapter 13 EMPLOYEE BENEFITS (IAS 1
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The accounting for a defined contri
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The amount of the expense or income
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• Fair value of plan assets: $50
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8. Past service cost: $115 million.
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Pensions Employee costs Employee co
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9. An entity operates a defined ben
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For quite some time, it has been un
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Solution Citimart Inc. would need t
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The Standard does not favor either
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Chapter 15 THE EFFECTS OF CHANGES I
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Facts An entity purchases equipment
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The exchange difference is calculat
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disposal was recognized. The same a
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Difference 7 Total 89.5 (say 90m) T
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ate on December 31, 20X9 is $1 =
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On December 1, 2009, Compassionate
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1. In order to capitalize the borro
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Chapter 17 RELATED-PARTY DISCLOSURE
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Solution Yes, under IAS 24 (revised
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warrant disclosure because it may n
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Facts Zeeba Inc. is part of a major
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The Used Equipment Co (Pty) Limited
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Key management personnel are define
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Chapter 18 ACCOUNTING AND REPORTING
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Total accounts payable 41,000 Accru
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Employee contributions 50,000 Total
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Chapter 19 CONSOLIDATED AND SEPARAT
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2. Noncontrolling interests in the
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When an entity loses control of a s
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Initially, the fair value of the as
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c. The ultimate parent entity produ
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EQUITY METHOD Under the equity meth
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What is the relationship between Co
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What amount should be shown in A’
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(f) (g) (h) December 31 60 73 Assoc
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. The carrying value of the associa
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PRACTICAL INSIGHT Turkiye Petrol Ra
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Cash 5,150 Share capital (300/100
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Chapter 22 INTERESTS IN JOINT VENTU
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Facts Three entities decide to form
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current period (IFRIC 1.5). Thus in
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Methods of valuation techniques use
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of impairment exists, the carrying
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Chapter 23 FINANCIAL INSTRUMENTS: P
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Contracts for contingent considerat
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has the unconditional right to refu
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principal and interest cash flows)
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On January 15, 20X5, Entity A issue
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instruments. A financial instrument
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The major components of market risk
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Credit risk is the risk that a cust
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1. Are there any circumstances when
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• A purchased put option to sell
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• Sales that are so close to matu
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eceived nothing on entering into th
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price plus interest. In this case,
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CASE STUDY 4 This case illustrates
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financial liabilities measured at f
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Example If Entity A receives a cash
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If the reporting period does not co
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cash flow pattern, credit quality,
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of the cash flows. 2. Entity A purc
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PRACTICAL INSIGHT IAS 39 does not p
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This case illustrates how to accoun
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This case illustrates how to accoun
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This case illustrates when to separ
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change in fair value of the derivat
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A cash flow hedge is a hedge of the
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This case illustrates the accountin
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PRACTICAL INSIGHT It is often possi
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Derivatives are measured on the bal
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15. Which of the following is not o
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• As amounts attributable to the
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The theoretical ex-rights fair valu
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Diluted earnings per share Adjusted
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Earnings: diluted earnings per shar
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• Basic and diluted earnings per
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The numbers of shares included in t
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Chapter 26 INTERIM FINANCIAL REPORT
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should be applied and previously re
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Consolidated balance sheet at June
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1. Under IAS 34, interim financial
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was $5 million. It was planned at t
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development costs. An impairment lo
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The fair value less cost to sell of
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can be reasonably allocated. 3. Thi
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PRACTICAL INSIGHT Austrian Airlines
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Impairments charge in the year Ther
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. Loss on goodwill. c. Loss on a bu
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Recognition of Provisions Those lia
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An onerous contract is an agreement
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In order to recognize a provision (
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A Singapore-based shipping company
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c. Because Amazon Inc. can avoid th
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In order to meet the definition of
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Examples of activities that may fai
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• These costs can be measured rel
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Entities are to apply the provision
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Future changes in expected cash flo
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Chapter 30 INVESTMENT PROPERTY (IAS
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If, on acquisition, it is not possi
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pool in which the fair value model
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Chapter 31 AGRICULTURE (IAS 41) BAC
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Required Value of biological asset
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2-year-old animal at November 1, 20
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Notes to Group Financial Statements
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d. There is no requirement in the S
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Financial statements presented by a
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Solution In order to prepare the op
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• Identification of assets acquir
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2. No journal entry is required as
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IFRS 1 discusses exemptions under t
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Solution In valuing the shares of V
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• Unilever was an early adopter (
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Chapter 33 SHARE-BASED PAYMENTS (IF
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date of the cancelation is deducted
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party, to satisfy its obligations t
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Playful has ordered an amount of in
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May 31, 20X8 August 1, 20X8 5,000
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Should the plans be valued at fair
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4. An entity issues fully paid shar
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Chapter 34 BUSINESS COMBINATIONS (I
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Future losses or other costs that a
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93 Interest (13) Profit before tax
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This choice of method of accounting
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The error in 20X9, regarding the om
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This makes a total NCI of $554m. c)
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$m J retained earnings 360 Share of
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Page 398 and 399: 11. The “excess of the acquirer
Page 400 and 401: Chapter 35 INSURANCE CONTRACTS (IFR
Page 402 and 403: Required Discuss how the reinsuranc
Page 404 and 405: Guaranteed residual values Guarante
Page 406 and 407: Chapter 36 NONCURRENT ASSETS HELD F
Page 408 and 409: SUNDRY POINTS Exchanges of noncurre
Page 410 and 411: Before classification of the item a
Page 412 and 413: Noncurrent assets Current assets No
Page 414 and 415: c. At carrying value. d. In accorda
Page 416 and 417: IAS 8 specifies a hierarchy of crit
Page 418 and 419: fuel used, rig costs, delay rentals
Page 420 and 421: Chapter 38 FINANCIAL INSTRUMENTS: D
Page 422 and 423: other than credit risk (i.e., chang
Page 424 and 425: 2. Whether fair values are determin
Page 426 and 427: d. Transfers into or out of Level 3
Page 428 and 429: equires that any derivative that do
Page 430 and 431: The amount recognized in the income
Page 432 and 433: a. To provide presentation and disc
Page 434 and 435: amongst the top management personne
Page 436 and 437: Recreational clubs $ 50 million vs
Page 438 and 439: Chapter 40 FINANCIAL INSTRUMENTS (I
Page 440 and 441: Discussion The entity’s objective
Page 442 and 443: The following are indicators of whe
Page 444 and 445: However as IFRS 9 eliminates the av
Page 448 and 449: Chapter 41 IFRS FOR SMEs INTRODUCTI
Page 450 and 451: the IFRS for SMEs, if an entity can
Page 452 and 453: 2. The subsidiary’s business acti
Page 454 and 455: All grants are measured at the fair
Page 456 and 457: The present value of the fine will
Page 458 and 459: 3. If SMEs choose to follow the Sta
Page 460 and 461: 1. b 2. a 3. a 4. c 5. a 1. a 2. c*
Page 462 and 463: 1. b 2. a 3. b 1. d 2. b 3. c 4. c
Page 464 and 465: 2. b 3. b 4. a 5. a 6. b 7. b 8. b
Page 466 and 467: 18. d* 19. b 20. b 21. a 22. b 23.
Page 468 and 469: INDEX Abandonment Accounting compou
Page 470 and 471: Control business combinations conso
Page 472 and 473: interests. See IAS 32, Financial In
Page 474 and 475: events after the reporting period G
Page 476 and 477: gross basis versus net basis indire
Page 478 and 479: IAS 18, Revenue amendment to backgr
Page 480 and 481: net assets available for benefits n
Page 482 and 483: fair value per share financial stat
Page 484 and 485: initial measurement interest income
Page 486 and 487: scope of share-based payment transa
Page 488 and 489: credit risk effective date fair val
Page 490 and 491: property, plant, and equipment Impa
Page 492 and 493: Market risk Materiality Measurement
Page 494 and 495: Recoverable amount, impairment loss
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usiness combinations financial inst
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